A Trump Empire Built on Inside Connections and $885 Million in Tax Breaks

Donald J. Trump, left, with
Mayor Ed Koch, center and New York Gov. Hugh L. Carey, pointing to a
rendering of what would become the Grand Hyatt Hotel, in June 1978. A
crucial factor behind the hotel’s construction was 40-year tax break
that has cost New York City $360 million to date.Credit
Associated Press

The
way Donald J. Trump tells it, his first solo project as a real estate
developer, the conversion of a faded railroad hotel on 42nd Street into
the sleek, 30-story Grand Hyatt, was a triumph from the very beginning.

The hotel, Mr. Trump bragged in “Trump: The Art of the Deal,” his 1987 best seller, “was a hit from the first day. Gross operating profits now exceed $30 million a year.”

But
that book, and numerous interviews over the years, make little mention
of a crucial factor in getting the hotel built: an extraordinary 40-year
tax break that has cost New York City $360 million to date in forgiven,
or uncollected, taxes, with four years still to run, on a property that
cost only $120 million to build in 1980.

The
project set the pattern for Mr. Trump’s New York career: He used his
father’s, and, later, his own, extensive political connections, and
relied on a huge amount of assistance from the government and taxpayers
in the form of tax breaks, grants and incentives to benefit the 15
buildings at the core of his Manhattan real estate empire.

Since
then, Mr. Trump has reaped at least $885 million in tax breaks, grants
and other subsidies for luxury apartments, hotels and office buildings
in New York, according to city tax, housing and finance records. The
subsidies helped him lower his own costs and sell apartments at higher
prices because of their reduced taxes.

Mr.
Trump, the Republican nominee for president, has made clear over the
course of his campaign how proud he is that “as a businessman I want to
pay as little tax as possible.”

While
it is impossible to assess how much Mr. Trump pays in personal or
corporate income taxes, because he has refused to release his tax
returns, an examination of his record as a New York developer shows how
aggressively he has fought to lower the taxes on his projects.

Mr.
Trump successfully sued the administration of Mayor Edward I. Koch
after being denied a tax break for Trump Tower, his signature building
on Fifth Avenue. Two decades later, in a lawsuit that spanned the
administrations of Mayors Rudolph W. Giuliani and Michael R. Bloomberg,
he won a similar tax break for Trump World Tower, a building on First
Avenue with some of the city’s highest-priced condominiums in 2001.

The tax breaks for those two projects alone totaled $157 million.

The tax break at the 44-story Trump International Hotel and Tower at Columbus Circle came to $15.9 million.

No
possible subsidy was left untapped. After the terrorist attacks on the
World Trade Center, Mr. Trump lined up a $150,000 grant for one of his
buildings near ground zero, taking advantage of a program to help small
businesses in the area recover, even though he had acknowledged on the
day of the attacks that his building was undamaged.

“Donald
Trump is probably worse than any other developer in his relentless
pursuit of every single dime of taxpayer subsidies he can get his paws
on,” said Alicia Glen,
Mayor Bill de Blasio’s deputy mayor for housing and economic
development, who first battled Mr. Trump when she worked in Mr.
Giuliani’s administration.

In
seeking those subsidies, Mr. Trump is not that different from many
other developers. But the level of subsidies he has received along with
his doggedness in claiming them seem at odds with his rhetoric as an
outsider candidate who boasts of his single-handed success and who has
denounced what he calls the pay-to-play culture of politics and a
“rigged” system of government.

Public Money That Helped Donald J. Trump Build in Manhattan

Without
addressing specific questions about his pursuit of tax breaks and other
subsidies, Mr. Trump in a telephone interview defended going after
them. “In many cases, they made the difference between building and not
being able to build,” he said. “I’ve gotten incentives in other parts of
the world as well.”

An Unprecedented Break

In
the mid-1970s, eager to make his mark in Manhattan, the 30-year-old Mr.
Trump focused his attention on the failing Commodore Hotel on East 42nd
Street, next to Grand Central Terminal. The owner, the bankrupt Penn
Central Railroad, was keen to sell.

It
did not seem like an auspicious plan. The city was in the midst of both
its own fiscal crisis and a broader economic one; the neighborhood near
the terminal had gotten seedy; and Mr. Trump did not have the capital
for the project. He needed his father, Fred C. Trump,
to guarantee a portion of the construction loan. Hyatt, which was going
to run the hotel, took a 50 percent stake in exchange for guaranteeing
the rest of the project.

But Mr. Trump insisted that the project was not viable without a tax break from the city.

In
pressing for government approval, Mr. Trump proved to be the
quintessential insider, at least through his father: The elder Mr. Trump
was a major contributor to and friend of Mayor Abraham D. Beame and Gov. Hugh L. Carey, both Democrats.

“Fred
was a big macher in Brooklyn,” said Martin J. McLaughlin, a lobbyist
who worked for Donald Trump in the 1990s. “He had an extremely close
relationship with Beame and Carey.”

Mr.
Trump visited a young city official, Michael Bailkin, who devised a
plan centered on a 40-year tax abatement, still the longest ever granted
by the city, under which the state would own the land beneath the hotel
and lease it to the partnership for $1 a year.

“I
viewed him as another developer, one with limited experience, but
coming from a family with a lot of experience,” Mr. Bailkin recalled in
an interview.

Mr. Trump had one other qualification. “He did say,” Mr. Bailkin added, “the administration would support it.”

Mr.
Carey was on board. But Mr. Trump needed the state’s Urban Development
Corporation to go along. He hired Louise Sunshine, the governor’s chief
fund-raiser, who arranged a meeting with the head of the agency, Richard Ravitch.

Mr.
Ravitch said in a recent interview that he responded frankly after Mr.
Trump laid out the project: “It’d be great to have a Hyatt on 42nd
Street. I thought it’d be successful. But I don’t think it should be
exempt from taxation.”

In
the end, after phone calls from Mr. Beame and other Democratic
politicians, Mr. Ravitch and the agency’s board voted to approve the
project, though the partners in the hotel had to pay a modest rent for
the land based on a percentage of their profits and allow for subway
entrances to be built nearby.

The Grand Hyatt Hotel on 42nd Street, next to Grand Central Terminal, in Manhattan.Credit
George Etheredge for The New York Times

Mr.
Trump said the decision was made on the merits. “We were a contributor
like many people were contributors,” he said. “But there never was a
quid pro quo.”

Even
before it opened, though, Mr. Trump had infuriated the new mayor, Mr.
Koch, by reneging on the promise to allow for access to the subway on
the east and west sides of the hotel.

Mr.
Trump eventually granted the western easement and allowed the
Metropolitan Transportation Authority to build a stairwell, but shed his
responsibility for the other entryway.

City
officials initially estimated that the tax break on the Hyatt was worth
$4 million a year to Mr. Trump. But according to a recent analysis
conducted by the city’s Finance Department at the request of The New
York Times, the actual annual giveaway was far higher: $6.3 million in
1983, rising to $17.8 million in 2016. The combined value of the
forgiven taxes is $359.3 million, with four years left on the abatement.

Over
the same period, the hotel’s owners have paid the city $202.5 million
in rent and fees, according to the state agency overseeing the project,
Empire State Development.

Mr.
Trump said the tax break did what it was supposed to do. “The hotel was
a great success for the city,” he said. “It regenerated interest in
that area.”

But
early on, the city suspected something was amiss with the rent
payments, when the total dropped in 1986, despite rising profits. A 1989
review by Karen Burstein, the city’s auditor general at the time, found
that Mr. Trump and Hyatt owed the city $2.9 million for 1986, having
used “aberrant and distortive” accounting methods to reduce their
obligation.

“This
was subsidized by city residents,” Ms. Burstein said recently of the
tax break. “The last thing you do is cheat the very people who are your
partners.”

After
the city and state demanded payment, the hotel partners sued them in
1990. The suit was settled in 2004. Neither court files nor the city’s
Law Department have a copy of the agreement, but a city official who
requested anonymity because the person was not authorized to discuss the
matter, said that the city recouped $850,000.

By the time of the settlement, the Pritzker family, which controls the Hyatt hotel chain, had paid Mr. Trump $140 million for his share of the hotel, after their partnership turned acrimonious.

Low Taxes, ‘Elegant Life’

When
the Hyatt opened, Mr. Trump was already at work on a second project:
Trump Tower, the 58-story, bronze-glass building that would become his
home, the headquarters for his company and a tourist attraction.

A building in the Trump Place
development on Manhattan’s Upper West Side. A city program
significantly lowered estimated taxes for apartments sold in the
development.Credit
George Etheredge for The New York Times

The
idea was to raze the Bonwit Teller department store, whose prestigious
Fifth Avenue address he described as a “Tiffany location.”

To
build what he called “the ultimate vision of an elegant life seen
through a golden eye,” Mr. Trump wanted a 10-year property tax break
under the city’s 421-a program, which was created in 1971 to stimulate
housing construction. As the city’s economy rebounded, 421-a and
programs like it were coming under criticism as giveaways to developers.

The
Koch administration rejected Mr. Trump’s application, saying the
project did not qualify because he was replacing a store with hundreds
of employees and annual sales of $30 million, rather than an
“underutilized property.”

Mr.
Trump sued the city in 1981. Justice Arnold L. Fein of the Appellate
Division ruled in the city’s favor, writing that 421-a “hardly
contemplates the grant of benefits at the most choice, already
adequately utilized location in Manhattan to create residential luxury
apartments.”

Mr.
Trump appealed and in 1984, the New York State Court of Appeals ruled
that the city’s action had “impermissibly erected a barrier to the
benefit,” and Mr. Trump was entitled to the tax abatement.

Mr. Trump said at the time that the abatement was worth $7 million to $10 million over 10 years.

The
Finance Department, however, said in its recent analysis that the value
of the benefit totaled $22.5 million. Mr. Trump later got an additional
$15 million tax break under a separate program for renovating the
tower’s commercial space.

Mr.
Trump continued to fight the Koch administration’s attempts to restrict
the tax breaks or to require developer concessions, such as subsidized
apartments, in return. After the administration refused to provide tens
of millions of dollars in benefits for another project, on the West Side
of Manhattan, Mr. Trump declared: “the city under Ed Koch is a
disaster.”

‘A Great Selling Point’

It is easy to understand why the tax breaks were so important to a developer like Mr. Trump.

During
a building’s two- to three-year construction phase, when there is no
rental or sales money coming in, a 421-a tax abatement can save a
developer millions of dollars in taxes, because the property is taxed at
the rate in effect before improvements are made. Once a building is
completed and its apartments are sold, the benefits accrue to the
buyers, significantly lowering taxes and making the apartments more
appealing.

In the 2004 offering plan for a new two-bedroom penthouse at 120 Riverside Boulevard in the Trump Place-Riverside South
development, which stretches from 59th Street to 72nd Street on
Manhattan’s West Side, the estimated first-year property taxes were $617
because of the building’s 421-a tax abatement. Without the subsidy, the
taxes on the apartment, which was listed at $1.6 million in 2004, would
have been $32,916.

“It
was a great selling point,” said Charles P. Reiss, a retired executive
vice president for development at the Trump Organization. “For condos,
the monthly fee was greatly reduced.”

The benefit declines over time, with the apartment owner paying full taxes after 10 years.

After
winning the court battle over Trump Tower, Mr. Trump received 421-a tax
benefits from the Koch administration worth $20.8 million for his Trump
Plaza and Trump Palace projects.

During
the 1990s and into the 2000s, Mr. Trump built a number of New York
projects without taxpayer subsidies. But he continued to chase benefits,
large — and small.

Mr. Trump showed a picture of
the New York City skyline with his Trump World Tower near the United
Nations as he testified before a Congressional subcommittee in July
2005.Credit
Joe Raedle/Getty Images

For
instance, he sought, and received, a tax abatement worth $48,000 for
the conversion of a condominium tower called Trump Parc East under Mr.
Giuliani.

And
after the Sept. 11 attacks, he obtained a $150,000 grant for 40 Wall
Street, an office tower eight blocks from ground zero, through a
small-business recovery program.

In
the hours after the attacks, Mr. Trump told German television that his
property “wasn’t, fortunately, affected by what happened at the World
Trade Center.”

At
the other end of the spectrum, there was the 10-year tax abatement he
got on seven apartment buildings in Trump Place-Riverside South in which
he held a partial stake.

According
to the Finance Department analysis, the city forgave a combined $331.8
million in property taxes on the buildings, which were completed from
1998 to 2005.

Under
the revised rules governing the 421-a program, Mr. Trump was required
to set aside 700 of the 3,494 apartments — roughly 20 percent — for low-
and moderate-income tenants.

Suing for Subsidy Again

In 2000, Mr. Trump began marketing a new condominium near the United Nations, Trump World Tower,
which his brochures described as the “newest — and the most spectacular
— achievement of the Trump Organization.” Again, he wanted the city to
give him a 421-a tax break.

Ms.
Glen, then an assistant commissioner at the city’s Division of Housing
Finance, judged the project ineligible for public benefits.

After
the city’s court battle with Mr. Trump over Trump Tower, the City
Council had passed legislation dictating that 421-a benefits no longer
be used to demolish usable buildings at public expense.

In
a letter to Mr. Trump’s lawyer, Ms. Glen said Trump World Tower was to
be built on the site of a functioning office building, and denied him
the tax break.

Mr.
Trump sued and a State Supreme Court judge ordered the city to review
his application. After that suit stalled, he filed a second one that
ended in 2003 with a settlement that granted Mr. Trump a 10-year
exemption worth $119.5 million for the 371-unit condo, according to the
Finance Department.

To
meet his obligation to build affordable housing, Mr. Trump paid another
developer $9.65 million for 124 units earmarked for low- and
moderate-income tenants elsewhere in the city., according to court
records. He also had to forego a tax abatement during construction.

In 2002, apartments at Trump World Tower sold for an average of $1,046 per square foot, or $1.5 million for a small two-bedroom.

“His
whole MO is to exploit the government for everything he could get,”
said Jerilyn Perine, the city housing commissioner during the Giuliani
and Bloomberg administrations. “In the end, the letter of the law gave
it to him.”